GP/LP Structure Disadvantages for Commercial Real Estate Sponsors
The GP/LP (General Partner/Limited Partner) structure enables sponsors to scale hotel and commercial real estate deals with LP capital, but it introduces key trade-offs from the GP’s perspective. Randy Efron from Skylatus Property Capital outlines three primary disadvantages.
Disadvantage 1: Shared Control on Major Decisions
LPs funding most equity demand oversight via joint venture agreements. GPs handle day-to-day operations but require LP approval for major actions:
Refinancing debt
Firing/replacing management companies or franchisors
Renovations or property sales
This dilutes GP autonomy despite operational leadership.
Disadvantage 2: Time-Consuming Capital Raising
Raising LP equity delays closings, risking property loss to all-equity buyers. GPs must pitch, negotiate terms, and close commitments swiftly in competitive markets.
Disadvantage 3: Ongoing Reporting Overhead
GPs must deliver regular financial reports to LPs on investment performance, increasing administrative burden and potential staffing costs.
Summary of GP/LP Trade-Offs
| Disadvantage | Impact on GP |
|---|---|
| Control Loss | Major decisions need LP approval |
| Capital Raise Delays | Risk losing deals to faster buyers |
| Reporting Burden | Time/staffing for LP updates |
Contact Randy Efron at randy.efron@skylatus.com for GP/LP structuring at Skylatus Property Capital.